KBRA Affirms Ratings for Kuvare Holdings Companies and Key Operating Subsidiaries

KBRA affirms the insurance financial strength ratings (IFSRs) of A for Guaranty Income Life Insurance Company (GILICO) and United Life Insurance Company (ULIC), both with Negative Outlooks. KBRA also affirms the IFSRs of A- for Lincoln Benefit Life Company (LBL) and Kuvare Life Re Ltd. (KLR), both with Stable Outlooks. In addition, KBRA affirms the issuer ratings of BBB for Kuvare UK Holdings Limited (KUK) and Kuvare US Holdings, Inc. (KUS) and the debt rating of BBB- on KUS’ $225 million Fixed Rate Reset Cumulative Preferred Stock due 2051, all with Negative Outlooks.

Key Credit Considerations

The ratings reflect sound risk adjusted capitalization at the operating companies, the proven ability of the holding companies to raise capital to support growth, continued distribution expansion and product enhancements, and generally high credit quality, diversified investment portfolios. At the end of 2022, all operating companies’ risk-based capital ratios remained above target levels. Management has a demonstrated track record of raising capital totaling $1.8 billion through 2022 across a variety of structures including equity, preferred stock, debt, and via a sidecar. Retail sales growth at GILICO and ULIC has been driven by expansion of IMO and financial institution distribution channels as well as ongoing product enhancements. KLR, expanded its geographic footprint to Asia during 2022. LBL and KLR portfolios are of high credit quality while the portfolios of GILICO and ULIC are of solid credit quality relative to industry averages. Balancing these strengths are challenges to certain financial results, elevated financial as well as reinsurance leverage, a high proportion of interest-sensitive reserves, and a highly competitive market environment. Kuvare’s strong new business origination has created earnings and capital strain which, in turn, has created the need for external capital given that internally generated capital has not kept pace with growth. The establishment of redundant ULSG reserves has required ongoing, material capital contributions from LBL to its captive insurance company. Holding company financial leverage has increased consistently from the end of 2018 to the end of 2022 which, in KBRA’s opinion, creates negative pressure at the current rating level. KBRA also notes that due to increased drawings on a larger credit facility, there is currently a larger proportion of senior debt in the overall capital structure above the preferred shares. Kuvare makes extensive use of both internal and external reinsurance, thereby elevating reinsurance leverage relative to peers. External reinsurance exposures are typically to high credit quality counterparties or collateralized, although there are some notable concentrations with both internal and external reinsurers. Overall, the trend over the recent past has been toward writing/assuming more interest-sensitive business. While the (re)insurance marketplace for fixed and fixed indexed annuities is large, it is also competitive and includes many players, some of which are larger, have greater resources, and benefit from well-known brands.

Rating Sensitivities

A higher proportion of common equity in the capital structure, supported by a larger portion of internally generated capital, reduced financial leverage and robust cash coverage at KUS, reduced volatility in earnings and profitability ratios, material positive variance to risk-based capital ratio targets and a more balanced life and annuity business mix could result in a positive rating action. Significant deterioration in risk profile, a lower proportion of common equity in the capital structure and/or a declining portion of internally generated capital, higher financial leverage or a material decline in cash coverage at KUS, material realized investment losses or deterioration in the quality or performance of the investment portfolios, more highly concentrated interest-sensitive business mix, material negative variance to risk-based capital ratio targets or departure of a core management team member could result in a negative rating action.

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Methodologies